A blog by Eapen Thampy

Anti-Mankiw: What’s Wrong with the Most Popular Economics Textbook

Here I am reproducing in its entirety a post over on Facebook from my old college roommate and current TFA teacher, Jack Soltysik. Jack remains a friend, of course, and is the most motivated smart person I know. Since leaving college, we have kept in contact and my respect for his intellectual faculties and integrity has only grown.

On a side note, my 2000 National Spelling Bee winning brother went to Harvard to become a doctor ([sarcasm]and of course is now getting into finance [/sarcasm]) and as recently as 2007 told me that he sometimes had dinner with professors including Mankiw.

In any case, I agree with Jack on Mankiw. But here I’ll let him speak for himself. The entire post is worth reading:

“Some students may view the economic mainstream as right of center. That assessment is probably correct, at least as judged by the universe of college professors. But the job of an introductory course is to present, as honestly as possible, the consensus of the profession. If the typical economist is more market-friendly than the typical literature professor, then that point of view will likely be reflected in the leading textbooks.”

I think that I’m *generally* satisfied with this approach to academic openness and freedom. Sociologists are to the left of political scientists which are to the left of economists (please keep in mind that something like 80-90% of economists identify as Democrats and the the numbers for journal editors are higher). I don’t think any discipline is crazy; I think most ideas in college curricula are reasonable and to the extent that you disagree with models of thinking, don’t take the course; and if you can’t avoid the course, it will probably do good for you to be exposed to contrarian ideas; and you will have plenty of opportunities to study and read about whatever the hell you want.

But I think a bigger issue is that the foundations of economics, by the beginning of the 20th century, were divorced from ethics, rewedded to calculus, and there has been very little looking back. When Keynes weaved together his General Theory to get a trodden world out of the depression, the entire “trick” was analytical; it was done on pen and paper with maths. He opens up his book by saying:

“The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight—as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to thro over the axiom of parallels and to work out a non-Euclidean geometry.”
And I think it’s awesome that the “solution” to the great depression was simply the “answer” to the “problem” of a freshly conceived system of equations. I think this greatest of all analytical rabbits pulled out of a hat largely vindicates the rigorous and analytical approach.

At the same time, I think the mainstream now is at a point where it’s gone too far; or at least, gone too far without reflecting and reincorporating the lessons of old. I just find it strange that Adam Smith’s first work (A Theory on Moral Sentiments) was basically an attack on his mentor’s (David Hume’s) belief that happiness could be reduced to a utility calculus. As a moral philosopher or ethicist (there were no “economists” at the time), Smith deployed the Wealth of Nations with the aim to create a better world.

Today, the correct answer to almost every undergraduate economics exam question either is or depends on the deduction of what maximizes utility with respect to a given set of parameters. And the unspoken assumption (otherwise this is all a bunch of mental masturbation) is that this is somehow “right,” that this condition makes things “better,” without any reconsideration of modern economics’ first principles – precisely the ones Adam Smith dismissed in his day. These answers are “optimal.” They identify “bliss points.” What effect does it have on a generation of minds when the correct answer, exam after exam, semester after semester, is “maximimze utility?”

Interestingly, Ariel Rubinstein did a study that showed economics students prioritize profit maximization over the welfare of workers in a “one-shot” decision far more than MBA students. More frightening, economics students themselves tend to prioritize profit maximization over worker welfare even more when the problem is stated as an equation. Maybe, just maybe, the part of the brain responsible for ethical semantics gets subsumed by the activity in the brain responsible for syntactically processing that equation; that “ethical” answer is just the answer to the equation. But this is fucking crazy.

I think the utility calculus and the notion of happiness as utility is one of man’s most useful inventions, but we need to be honest that there is no good normative solution to the problem of discounting time; there is no good response to any of Derek Parfit’s “repugnant conclusions.” Economists need to be honest about the fact that modern utilitarianism is so full of exceptions and qualifications that its almost disingenuous to position it as an “alternative” to an obligation-based system of ethics. Modern utilitarianism converges in so many instances with classical deontology. But not in university economics courses. Not when the answer is just a first or second order derivative.

Freshmen I think intuitively grasp that there is something awry with a market and price-mechanism for human organs; but this insight isn’t expanded. The utility calculus makes “sense” in a moment of time; but not across a span of time, not when that time is long enough. It seems like, to the extent that professors understand it, they don’t view it as their job to think their confusion or ambiguity out loud. The real reason is that the questions inherent in their confusions or ambiguities have no good answers (maybe this should be qualified with a “yet”).

Simon Kuznets, who invented GNP (today GDP) as a measure, said you would be bat shit crazy to use it as a metric for the progress or happiness of a society. And I don’t think anyone out there is saying that that’s what we should do; but functionally, it IS what we do! And worst of all, this decision ignores one of the most important mathematically derived conclusions of modern theory, which is that utility gained from any particular thing (eg $) diminishes as you get more of that thing. So, mathematically (according to the foundations of mainstream economics), our progress indicator should not be a summation of incomes, but something like a summation of the logarithms of incomes. It’s not. And believe me, I get it, GDP changes are proxies and predictions for unemployment which of course roughly proxies for happiness. And so GDP per se is useful, but the policy making horizon is not the business cycle; in the long run we are all dead, but we still have full lives!

Keynes said that “economics is a method, not a doctrine, an apparatus of the mind.” But when I reflect on my economics education, my time spent in an economics think tank, my time spent researching with some really bright economists, I can’t help but feel that the method has a little flavor of doctrine, that the medium has in fact, become the message.

If anything, I think that’s the real problem with Mankiws book and and most econ books. My favorite economics textbooks are the ones that simply say: hey, check this out – if we assume x, y, and z, these are all the cool tricks we can do, and it seems like these tricks have some implications but are by no means absolute solutions to our most fundamental questions as human beings. No economist says they are. But the absence of genuine holism, the failure to think critically about first principles, the fact that economics began as a deployment of ideas in the pursuit of making society better off but has become a bag of parlor tricks, does the talking.

Addendum:

so, consistent with my belief that a revolutionary without a plan is little more than a vandal, i want to throw out some suggestions for what i think could make things better. (1) the part of economics that’s “science” needs to be treated like a science. students should analyze data, design experiments, and write and critique analysis in first … See Moreyear courses. to facilitate this, maybe econometrics should be required earlier in one’s undergraduate career. (2) the part of economics that’s “theory” absolutely must be wed with some interdisciplinary requirement in philosophy that ideally illustrates what the fuck math actually is. i just don’t believe you can fully appreciate marginal utility theory if you don’t know the difference between a natural number and an integer. sorry. (3) economic problem solving in the real world is fundamentally interdisciplinary. i just think something’s missing if everybody in a public choice class comes from one major where everyone thinks the same way, if there are no MBAs in an industrial organization class, if the education economist is at war with the people in the education department. conflict can have great social value. but so can cooperation.

Joe Stiglitz said on April 8 at Soros’ Cambridge, UK, conference that micro econ had driven macro econ far too long…that it was time for macro econ to stand on its own. This means maximizing utility for the community, country, and whole world that has become interconnected. So that means Smith, the Professor of Moral Philosophy can come back into vogue. We just replace his invisible hand of God, with visible and viable rules and regulations that protect the market structure from predatory behavior. Maximizing profit is still possible, as long as its fruits are distributed more equitably, which is a political decision, not economic.

Sorry but do **you** know the “difference between a natural number and an integer”? It has sweet fanny adam to do with philosophy rather rather integers are a superset of natural numbers including negative numbers, full stop. Why would I need to to know this to understand marginal utility theory?

Surely, from the point of view of mathematics, utility is simply a function to be maximised. It has no view on what different inputs affect the value differently – such as “being ethically acceptable”, whatever that means. If anything surely the main issue is that usually it is seen to map onto a line – which if you do know some maths then you know this severely constrains the form of the function.

Otherwise sounds like a like of mumbo jumbo from someone who comes from a philosophy angle and doesn’t know “what the fuck math actually is”.